We've got a recovery -- where are the jobs?
by Bill Catlin, Minnesota Public Radio
May 5, 2004

One reason why the U.S. has not replaced all jobs lost since the recession. Robots and other automation allow companies to produce more without adding workers. (MPR Photo/Bill Catlin)

The U.S. officially came out of a recession almost two and a half years ago. Since then, the economy has grown, but the number of jobs has not. Minnesota has fewer jobs now than at the end of the recession. So does the nation as a whole, despite solid gains in the first three months of the year.

St. Paul, Minn. —
Based on history, it makes no sense. When the economy starts growing, the number of jobs usually follows within a few months. Twenty-eight months after the last recession ended in 1991, the U.S. had gained more than two million jobs. This time, we haven't gained a single one. In fact, we're down 320,000 jobs compared to November 2001.

It's been a stumper, but one explanation stands out. The people who still have jobs are producing more -- a lot more. It's what economists call higher productivity.

At Ultra Machining Co. in Monticello, you can see higher productivity, in the form of a robot. The company makes parts for medical equipment. General manager Randy Hatcher says one robot equals two people.

"Human beings allowed us to do 10 to 12 parts per hour -- 12 with the best person we ever had doing it. The robot can do anywhere from 24 to 25 parts per hour. It is very accurate. It is very consistent," says Hatcher.

The robot looks like an enormous orange dentist drill perched on a stand. With surprising speed, it reaches to pick up a metal part and then precisely places it on a grinding wheel for polishing.

The robot doesn't take vacation, call in sick, or need health insurance. And it doesn't mind doing work that humans found so boring and hard on their joints that Hatcher couldn't keep people in the job.

"Automation allows us to make the part cheaper than it did with all these people," says Hatcher.

Randy Hatcher says investing in high-tech equipment like the robot not only improves productivity, it's key to survival.

"We have to find ways to do things for less cost. And by having less direct labor associated with the production of a part, we can do that with less cost. And we can give our customers, in many cases, unsolicited price reductions," says Hatcher.

Orders have picked up and the company has added both high-tech hardware and workers. But Hatcher says investments in technology mean he'll hire fewer workers than he normally would as the company's sales grow.

In the last few years, companies turned to robots, computer controlled tools, and personal computers to produce more per worker. That reduced the need for people, even as their business grew.

If I moved my business to Canada today, I would cut my health care bills by 90 percent. Because that's not how health care is financed in Canada. The way we finance health care is anti-job.- Ed Booth, CEO of the Bloomington-based firm IDeaS

Productivity has increased at such high rates since the recession, even normally staid economists use words like "astonishing," "spectacular," and "whopping." Steve Hine, a labor market expert for the state of Minnesota, says over the long term, higher productivity is a boon.

"We're much better off now than we were 100 years ago, because as workers we can produce much more and earn much greater income as a result," says Hine. "Of course in the short term, as we're seeing, productivity growth can be a double-edged sword."

Higher productivity allows companies to hold back on new hires when sales grow, but there's another factor at play. Uncertainty about the recovery's staying power bred caution. There's been a string of shocks -- the terrorist attacks, the corporate accounting scandals, the war in Iraq.

In the year and a half following the recession economic growth went from uneven to below average. Russ Hagen, past chair of the Minnesota Chamber of Commerce, says companies don't want to add staff until they see enough new orders and are sure demand won't peter out.

"It's difficult to lay somebody off. None of us likes to do it. So if you're going to hire people, you want to make sure you really can make use of them, so you don't end up having to lay them off in a reduction in force at some point in the future," says Hagen.

Adding employees is more expensive than ever, and CEOs say double-digit increases in the cost of health insurance are a major obstacle to hiring. Ed Booth, CEO of the Bloomington-based firm IDeaS, says companies like his have to pay $7,000 a year for an employee with family coverage. He says that amounts to a tax on jobs.

"If I moved my business to Canada today, I would cut my health care bills by 90 percent. Because that's not how health care is financed in Canada. So the way we finance health care is anti-job," says Booth.

Rising benefit costs create an incentive for companies to move work to lower-cost locations, like Canada, or overseas. While offshore outsourcing gets a lot of blame for the sluggish job market, outsourcing and imports are not a big reason for the jobless recovery.

Economists say foreign trade and outsourcing combined cost the U.S. about half a million jobs each year. That's a lot of jobs, but less than 4 percent of all jobs eliminated annually, according to a member of the Federal Reserve Board.

So, when will hiring pick up? There's gathering evidence the job drought is coming to an end. Productivity gains slowed down at the end of last year, meaning companies will find it harder to grow without adding staff. In fact, the economy added half a million jobs in the first three months of this year.

The cloud of uncertainty may be clearing as well. Economic growth has topped 4 percent on an annual basis for three quarters in a row, suggesting the recovery is here to stay. A recent survey of CEOs found half predict their industries will add jobs, up from only 16 percent a year ago. Whether a rebound in jobs is well underway -- or still to come -- will be clearer when the U.S. job count for April comes out Friday.